Cases
Practical case
Cycléo SA (a fictitious entity) manufactures and sells electrically assisted bicycles. At 31 December 20X3, competition has lowered the prices of some models, water damage has affected part of the inventories and the price of aluminium has fallen. You are testing the measurement of inventories for the financial statements for the year ended on that date; the financial statements have not yet been authorised.
Your assignment
Analyse each inventory item, calculate its net realisable value and its measurement at the lower of cost and net realisable value, determine the write-downs and the reversal for the year, assess the treatment of the aluminium frames, record the entries and measure the impact on the financial statements. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
6 documents: open each one to read it.
Document 1Table
Inventory listing at 31 December 20X3: Urban bicycles, 400 units at a unit cost of 900; Trail bicycles, 100 units with a cost of 200,000, written down by 30,000 at 31 December 20X2 after a price decline (opening carrying amount 170,000); Kids bicycles damaged by the water damage, 20 units with a cost of 6,000; aluminium frames held for production, cost 80,000.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Quantity of Urban bicycles | 400 units | |
| Unit cost of the Urban bicycle | €900.00 | |
| Quantity of Trail bicycles | 100 units | |
| Cost of the Trail bicycles | €200,000.00 | |
| Write-down of the Trail bicycles at 31 December 20X2 | €30,000.00 | |
| Quantity of damaged Kids bicycles | 20 units | |
| Cost of the Kids bicycles | €6,000.00 | |
| Cost of the aluminium frames | €80,000.00 | |
| Quantity covered by the contract | 300 units | |
| Contract unit price | €850.00 | |
| Transport per bicycle delivered | €10.00 | |
| General selling price of the Urban bicycle | €1,200.00 | |
| Costs to sell per Urban bicycle | €60.00 | |
| Selling price of the Trail bicycle | €1,950.00 | |
| Costs to sell the Trail bicycles | €5,000.00 | |
| Repair costs | €1,000.00 | |
| Unit selling price of the Kids bicycles | €250.00 | |
| Selling costs of the Kids bicycles | €500.00 | |
| Replacement cost of the frames | €65,000.00 | |
| List price of the Speed model | €3,500.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Inventory listing at 31 December 20X3
Firm contract with Mobilis Flottes
Sales department memo
Workshop report and January 20X4 sale
Purchasing memo
Extract from the 20X4 catalogue
9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
How do you split the inventories for the net realisable value test?
Task 2Calculation
Calculate the net realisable value of each item.
Part 1 · Calculation
Calculate the net realisable value of each item.
Result: Net realisable value, Kids bicycles
Task 3Calculation
Determine the measurement of each item and the total of the inventories tested.
Part 1 · Calculation
Determine the measurement of each item and the total of the inventories tested.
Result: Total carrying amount of the inventories tested
Task 4Calculation
Calculate the write-downs required at the reporting date.
Part 1 · Calculation
Calculate the write-downs required at the reporting date.
Result: Write-downs for the year
Task 5Calculation
Calculate the reversal of the write-down of the Trail bicycles.
Part 1 · Calculation
Calculate the reversal of the write-down of the Trail bicycles.
Task 6Professional judgement
Should the aluminium frames be written down?
Task 7Journal entries
Record the closing entries.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 8Effects on the financial statements
What is the impact of these entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 9Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references